Securing bitcoin is challenging because bitcoin is not an abstract reference to value, like a balance in a bank account. Bitcoin is very much like digital cash or gold. You've probably heard the expression "Possession is nine tenths of the law". Well, in bitcoin, possession is ten tenths of the law. Possession of the keys to unlock the bitcoin, is equivalent to possession of cash or a chunk of precious metal. You can lose it, misplace it, have it stolen or accidentally give the wrong amount to someone. In every one of those cases, the end-user would have no recourse, just as if they dropped cash on a public sidewalk.
Securing bitcoin is challenging because bitcoin is not an abstract reference to value, like a balance in a bank account. Bitcoin is very much like digital cash or gold. You've probably heard the expression "Possession is nine tenths of the law". Well, in bitcoin, possession is ten tenths of the law. Possession of the keys to unlock the bitcoin is equivalent to possession of cash or a chunk of precious metal. You can lose it, misplace it, have it stolen or accidentally give the wrong amount to someone. In every one of those cases, the end-user would have no recourse, just as if they dropped cash on a public sidewalk.
However, bitcoin has capabilities that cash, gold and bank accounts do not. A bitcoin wallet, containing your keys, can be backed up like any file. It can be stored in multiple copies, even printed on paper for hard-copy backup. You can't "backup" cash, gold or bank accounts. Bitcoin is different enough from anything that has come before that we need to think about bitcoin security in a novel way too.
@ -22,7 +22,7 @@ The most important principle for bitcoin developers is de-centralization. Most d
Bitcoin's security relies on decentralized control over keys and on independent transaction validation by miners. If you want to leverage bitcoin's security, you need to ensure that you remain within the bitcoin security model. In simple terms: don't take control of keys away from users and don't take transactions off the blockchain.
For example, many early bitcoin exchanges concentrated all user funds in a single "hot" wallet with keys stored on a single server. Such a design removes control from users and centralizes control over keys to a single system. Many such systems have been hacked, with disastrous consequences for their customers.
For example, many early bitcoin exchanges concentrated all user funds in a single "hot" wallet with keys stored on a single server. Such a design removes control from users and centralizes control over keys to a single system. Many such systems have been hacked with disastrous consequences for their customers.
Another common mistake is to take transactions "off blockchain" in a misguided effort to reduce transaction fees or accelerate transaction processing. An "off blockchain" system will record transactions on an internal, centralized ledger and only occasionally synchronize them to the bitcoin blockchain. This practice, again, substitutes de-centralized bitcoin security with a proprietary and centralized approach. When transactions are off blockchain, improperly secured centralized ledgers can be falsified, diverting funds and depleting reserves, unnoticed.
@ -53,7 +53,7 @@ Since most users are far more comfortable with physical security than informatio
==== Hardware Wallets
In the longer term, bitcoin security will increasingly be implemented with hardware tamper-proof wallets. Unlike a smartphone or desktop computer, a purpose-built bitcoin hardware wallet has only one purpose and function - holding bitcoins securely. Without general purpose software to compromise and with limited interfaces, hardware wallets can deliver an almost foolproof level of security to non-expert users. I expect to see hardware wallets becoming the predominant method of bitcoin storage. For an example of such a hardware wallet, see the Trezor (http://www.bitcointrezor.com/)
In the longer term, bitcoin security will increasingly be implemented with hardware tamper-proof wallets. Unlike a smartphone or desktop computer, a purpose-built bitcoin hardware wallet has only one purpose and function - holding bitcoins securely. Without general purpose software to compromise and with limited interfaces, hardware wallets can deliver an almost foolproof level of security to non-expert users. I expect to see hardware wallets becoming the predominant method of bitcoin storage. For an example of such a hardware wallet, see the Trezor (http://www.bitcointrezor.com/).
==== Balancing Risk (loss vs. theft)
@ -71,7 +71,7 @@ Whenever a company or individual stores large amounts of bitcoin, they should co
One important security consideration that is often overlooked is availability, especially in the context of incapacity or death of the key holder. Bitcoin users are told to use complex passwords and keep their keys secure and private, not sharing them with anyone. Unfortunately, that practice makes it almost impossible for the user's family to recover any funds if the user is not available to unlock them. In most cases in fact, the families of bitcoin users may be completely unaware of the existence of bitcoin funds.
If you have a lot of bitcoin, you should consider sharing access details with a trusted relative or lawyer. A more complex survivability scheme can be setup with multi-signature access and estate planning through a lawyer specialized as a "digital asset executor".
If you have a lot of bitcoin, you should consider sharing access details with a trusted relative or lawyer. A more complex survivability scheme can be setup with multi-signature access and estate planning through a lawyer specialized as a "digital asset executor".
Minh T. Nguyen
10 years ago